What will Brexit mean for Australian food and beverage producers?

Despite indications the poll would be close, the London financial community has been dumbfounded by the decision of a majority of British voters to leave the European Union (EU).

However, advocates of the ‘Remain Case’ were not dumbstruck. They hit out at the result by blaming excessive populism by the ‘Leave Case’ and excessive ignorance by the voters. Yet they ignored the genuine concerns of a majority of voters, in particular in regional parts of the UK, beyond Westminster and London.

Despite the initial market panic, the leaders of the successful ‘Leave’ campaign seem to be wily strategists. Boris Johnson has already articulated a plan for Britain to negotiate a separate free trade agreement with the EU.

Delaying the serving of a notification to leave under Article 50 of the Lisbon Treaty may provide the British with additional negotiating leverage. The EU Commissioners are rattled, and despite all their tough talk of avenging defeat and applying pressure on Britain, the British can maintain the upper hand if they play their cards right.

Strategy needs unity. Both sides are threatened by disunity. However, the Europeans are more prone to disunity than the English. There is a danger that Europe could become a repeat of the Tower of Babel story, politically as well as by economic and financial reverberations.

Free Trade Agreement

Australia and Britain are more likely to negotiate a free trade agreement in the short term.

This will enhance commercial opportunities for British companies and British brands seeking to expand into the Asian and Pacific regions. Australia is still considered favourably by British food companies seeking a base from which to export clean, high quality product into Asia and attract a premium for the perceived “Australian high quality”.

It is in Australia’s best interests to negotiate a free trade agreement to reduce the potential negative impact of being forced to compete with their British counterparts in the region.

One possible scenario would be an increased interest in British companies acquiring Australian businesses.

Low British Pound

After it was confirmed Britain would be leaving the EU, the British pound slumped to its lowest level (measured against the Aussie dollar) since 1985, a 10 per cent drop within six hours.

If the pound remains weak it could reduce costs for Australian food and beverage companies importing from the UK. Importers of UK alcohol, spirits and other beverages, into the Australian market will therefore attract higher margins for Australian-based importers.

According to 2014/15 figures, the UK is ranked seven in terms of Australia’s overall trade partners.

New exporting possibilities

The UK currently relies heavily on other EU countries for fresh food, especially fruit and some vegetables.

Brexit could be an opportunity for Australian food and beverage producers to replace some of the EU suppliers if better trade arrangements can now be made.

Local UK farmers may struggle to remain competitive as they received up to 3 billion pounds annually from the EU. However, UK farmers could remain niche producers and exporters.

President of the UK’s National Farmer’s Union (NFU), Meurig Raymond, said that new trade agreements may need to be established.

“Currently we benefit from more than 50 trade agreements with countries in the rest of the world. We will continue to need these kind of arrangements in future, whether this means negotiating new deals or not,” he said.

“A key question we asked the Leave camp, and on which we never received a clear answer, was what kind of access would an independent UK give to imports from the rest of the world? Our requirement is that we are not open to imports which are produced to lower standards.”

Labour

Also raised by the NFU, the UK relies on workers outside of the UK, both seasonally and on a full-time basis.

The NFU is now calling on a student scheme to be established to replace those who could now be restricted from coming into the country.

“Outside the EU we will need a student agricultural workers scheme, which is open to students from around the world.

If such a scheme were to go ahead, it would be interesting to see whether it could be attractive enough to poach those who might otherwise have considered coming to Australia to engage in similar activity.

Transport

Currently, under the Single European Sky laws which EU countries follow, all airlines based within the EU can freely operate across the countries. Leaving the EU means this could change for British based airlines and could result in issues for foods coming in the country via any of these airlines if new arrangements do not run smoothly.

Norway deal

Although leaving the EU could result in any number of changes, some economic analysts are encouraging Britain to make a “Norway style” deal with the EU.

Norway is not a member of the EU but it essentially operates as if it were a member. It is a member of the European Economic Area which allows for the free movement of people, goods and money within the EU.

Boris Johnson has even better ideas for a better-than-Norway deal with greater British border controls. He believes Britain is strong enough to negotiate its own free trade agreements with the EU and others.

The market panic is clearly an over-reaction. British voters have asserted their own democratic sovereignty to take back control over their own destiny.